Testing for moral hazard at the tourist destination

The business of package tours has seen a wide range of inferior quality, including tour operators" misrepresentation of product information, default on contracted services as well as misguided consumptions and deceitful dealings at the destination. Among the most prominent of these would be the so-called "zero-fare" group tours, a terminology that is believed to have it origins in the Chinese context to portray a complex of inferior quality in China"s outbound tourism market. Drawing upon the Lemons problem that regards asymmetric information as the fundamental cause of inferior quality, this study presented a model of moral hazard in package tours to conceptualize the broad range of inferior quality supplied at the destination. Empirical investigation of the model was carried out in China"s outbound tourism market, in which data were collected by administering a cross-sectional survey to Chinese package tourists. Results have shown that asymmetric information measured by tourists" knowledge of inbound tour operators" effort resulted in quality deterioration of travel services at the destination, indicating the occurrence of moral hazard.